Material Management Challenges

In the electrical contracting industry, material ordering and delivery are critical to the successful execution and completion of any project. The person in charge of procuring materials or the purchasing department, in the case of a large company, need to ensure that the correct materials in the correct quantities are ordered. They also need to verify the release dates at which the material is needed and clearly specify those delivery dates as well as the location of delivery to the supplier. Other challenges that face the electrical contractor include bid procurement issues, where and when to purchase materials and material storage and distribution at the job site. To avoid these challenges, organized coordination and communication between the parties involved are essential.

Bid procurement

Changes in a project's scope are inevitable; therefore, exceeding the initial planned budget is not uncommon. The electrical contractor is usually one of the last trades hired in a project and in many times is asked by the general contractor (GC), prior to finalizing the contract, to absorb some of the cost increases associated with such changes. This situation usually arises because the GC promises unrealistic estimates to the owner without the direct involvement of his subs and specialty contractors. An example would be the owner's request for substitution of material with one of better quality and higher value (e.g. change of scope) while maintaining overall project budget. In many situations, the GC will agree to such changes without demanding extra costs from the owner. The electrical contractor, being one of the last trades involved in the project, may be asked to squeeze his bid to accommodate this situation. The problem could be minimized if the electrical contractor is involved in the project's planning and design. The electrical contractor can provide expertise with materials and means and methods for installation, as well as give more realistic cost estimates to the owner. The electrical contractor could give advice about the difficulty, cost and time required for installation to better assess the effect that the changes in scope could have on cost and schedule.

Material purchasing

The purchasing process is dependent on the types of material ordered. In general, materials purchased fall into two categories: miscellaneous material or commodities, and major materials. Miscellaneous materials refer to off-the-shelf items such as cables, conduits, straps and fittings. Major materials include switchgears, lighting fixtures, alarm systems and other items that need to be designed-fabricated specifically for a given job.

Although the purchasing process may involve negotiating specifications and prices directly with a manufacturer, electrical contractors need to purchase materials from a supplier-distributor. The selection of a reputable supplier is critical for ensuring that materials are delivered in the quantities needed and at the dates specified.

Some companies have independent agents, depending on the type of material, for supplier selection and procurement. Suppliers are usually selected based on lowest price; however, contractors may consider suppliers with higher prices that will provide better service or have a record to supply the right material in the quantities needed at the times specified. In some situations incomplete proposals from suppliers may delay the selection process.

For miscellaneous materials or commodities, most contractors select their suppliers-distributors based on a bidding process, unless there are blanket purchase orders or yearly contracts for certain types of commodities. In this case, the contractor buys those commodities from that particular supplier. This blanket or yearly contract ensures that the price for those commodities will be fixed for a predetermined period, usually one year. The way in which the contractor gets a blanket or yearly contract is through bidding or a negotiated process with suppliers. The contractor requests prices for certain commodities by specifying the expected volume to be used in a given year based on history of use for that particular product. Due to high competition in their market area, some contractors don't use blanket or yearly contracts because they are able to get competitive prices by requesting bids from their suppliers at any time.

For major material, the contractor usually negotiates prices with the manufacturer directly, if the manufacturer is specified in the contract documents. However, the contractor has to buy the material through the supplier-distributor after a markup has been applied. If the manufacturer is not specified in the contract documents, the contractor requests bids from different manufacturers. Contrary to miscellaneous materials, major materials need to be fabricated and require lead times. If the amount requested is less than the amount estimated and there are shortages, the contractor will have to wait until the material is fabricated, which can cause disruptions and delays.

Material procurement

Once a supplier is selected, the contractor has to systematically follow up on the status of the ordered material to assure it arrives at the job site in the quantities and dates specified. In many companies, this process starts with the generation of a material requisition schedule (e.g. release forms) specifying material types, quantities needed and dates when the material should be delivered. In large jobs, the schedule is usually prepared by the site staff then sent to the purchasing department to request the material from the suppliers-distributors under contract. In smaller companies or in smaller jobs, material may be procured directly by the field personnel. To avoid surplus, many contractors request only 80 percent of planned material. Additional quantities are purchased when the job is near completion and a better estimate is realized.

Material is generally requested for delivery to the job site. In some instances this may not be feasible due to storage or access limitations. In this case, the material is delivered to other locations such as the contractor's warehouse or another subcontractor storage area.

Material may be delivered to a warehouse when critical specialty items are ordered early and won't be installed immediately, when job site storage area is unavailable or if the material will be used for prefabrication. Warehousing material prior to moving it to the job site increases indirect costs due to rehandling. Some companies use a prefabrication shop to assemble components in a controlled environment. Preassembly advantages include increased production time and reduced labor costs as compared to assembly in the field where poor weather conditions and space limitations may cause work delays. The increase in productivity and savings in labor costs outweigh additional costs encountered due to prefabrication and rehandling. Some site personnel, particularly job foremen, may not favor prefabrication due to fear of loss of control on material and installation. In some companies, upper management has developed incentive programs to introduce site staff to the benefits of prefabrication and to facilitate a change of culture and acceptance of the process.

In other instances, the electrical contractor may use a subcontractor's yard for storage and subsequent delivery and installation. A typical example of this situation would be using the rigging subcontractor to store large materials such as transformers. In addition to using him for installation, the subcontractor provides available storage space until material can be delivered to the site and installed.

Job site storage and handling

Electrical contractors encounter the majority of their material-management problems at the job site, including material tracking, storage issues, material distribution and rehandling.

Tracking materials is one of the biggest challenges the electrical contractor faces. Tracking identifies undelivered material as ordered or delayed. Tracking is also essential in figuring what materials are available to minimize theft or loss, to identify where it is stored on site and to control inventory costs. In some instances suppliers may deliver the materials that need to be returned.

There is no direct cost to the electrical contractor in this case; however, indirect costs could be incurred with possible delays to finish affected activities. In other instances, material might be misplaced or relocated by warehouse personnel or not properly identified before storage. In addition, material could be lost, damaged or stolen after it is issued, which represents a major problem for the electrical contractor. An automated system, such as bar codes, could greatly improve tracking and inventory control and minimize loss and material misplacement.

Material damage is another challenge faced by the electrical contractor. Material may get damaged during delivery or while in storage. If the material is damaged prior to delivery and the person receiving it acknowledges the damage, the material is returned at no cost for the electrical contractor. However, this might cause a delay if the material is needed immediately. If the person receiving the material does not identify any damage, the contractor may end up responsible for the damaged material, which will result in a loss. Similarly, the contractor assumes responsibility for damages to material while it is stored prior to installation.

Material rehandling on the job site is another big issue for electrical contractors. Most of the time, contractors have trailers for material storage prior to installation. The material is moved from these trailers to the building as it is needed. This material might be subsequently moved around the building to create space for other trades before it is installed. This rehandling increases indirect costs associated with that particular material. EC

Acknowledgement

This article is based on the Electrical Contracting Foundation Inc. research project titled A Framework for an Integrated Materials Management System. The authors would like to thank the foundation for its support.

THABET is an assistant professor in the Department of Building Construction at Virginia Tech. He can be reached at (540) 818-4604 or thabet@vt.edu. PERDOMO is a Ph.D. candidate in the Department of Building Construction at Virginia Tech. He can be reached at (540) 231-9877 or jperdomo@vt.edu.